Initial coin offering (ICO) regulation is reaching a tipping point as investment in emerging crypto projects continue to fall. Despite ICO funding reaching record levels in 2018, activity has slowed in recent months due to scandals, backlash from governments and a general sense of uncertainty surrounding the ICO market. Indeed, with apathy taking hold, September was the second month in a row where token sale revenue dropped according to Autonomous Research. However, as is often the case when an unregulated market begins to falter, hope appears in the form of political change.
South Korea Pushing for ICO Change
According to the latest reports, South Korea could be set to rejoin the ICO market. The country outlawed crypto ICOs in September 2017, citing a need for greater monitoring and controls. The move sent shockwaves across Asia and saw funding levels dip. However, 12 months on, there are new five bills sitting with the National Assembly according to local news outlet Chosun. Of the crypto-related legislation on the table, a proposal by Park Yong-jin of the Democratic Party seems the most promising. Aiming to amend the Electronic Financial Transactions Act, the bill would make it legal to not only run ICOs in South Korea but also to buy cryptocurrencies.
As it stands, South Koreans can’t buy Bitcoin online – or any other digital token for that matter – as easily as residents of other countries. What’s more, companies based in South Korea have had to focus their efforts on neighboring countries such as Singapore in an effort to say afloat during the ban. However, things could start to change as ten lawmakers are now pushing for a new regulatory framework. At the heart of the proposed legislation is a clause that will force crypto businesses to specify their purpose. In other words, companies will have to fall into categories such as trading, management and brokerage.
Structure and Credibility Breed Confidence
In addition to giving the industry more structure, the tokens offered will have to abide by certain standards. Indeed, as research has shown, around 80% of ICOs in 2017 were scams. In contrast to when traders use exchanges to buy XRP et al, cryptos sold through an ICO are as yet untested. What’s more, they aren’t listed for sale in any of the usual outlets. For a coin to obtain any real value, it has to become a tradable asset, and that means it has to be listed on an exchange. According to the Statis Group, the majority of ICOs in 2017 never made it onto an exchange.
For investors, this type of uncertainty is a risk you have to take when investing in crypto fundraisers. However, for governments and financial regulators, it’s an invitation for criminals to exploit the inexperienced and uneducated. For this reason alone, regulation in South Korea could reinvigorate the market. If people have a reason to trust ICOs, they’re more likely to invest. In turn, if regulation can work in South Korea, it can work anywhere – and that could reverse the current bearish trend sweeping the ICO sector.